Journal of Law & Commerce Vol. 35, No. 2 (2017) ● ISSN: 2164-7984 (online) DOI 10.5195/jlc.2017.120 ● http://jlc.law.pitt.edu TRADEMARKS AS SOURCES OF MARKET POWER: DRUGS, BEERS AND PRODUCT DIFFERENTIATION P. Sean Morris This work is licensed under a Creative Commons Attribution-Noncommercial-No Derivative Works 3.0 United States License. This site is published by the University Library System of the University of Pittsburgh as part of its D-Scribe Digital Publishing Program, and is cosponsored by the University of Pittsburgh Press. TRADEMARKS AS SOURCES OF MARKET POWER: DRUGS, BEERS AND PRODUCT DIFFERENTIATION P. Sean Morris* ABSTRACT This Article defines the notion of market power and how in conjunction with trademark rights give rise to elements that are deemed anticompetitive in a free market society. This Article uses legal arguments to consider how important developments in antitrust economics, particularly product differentiation and monopolistic competition, have contributed to the notion that trademarks are a source of market power. The Article uses a number of cases in the field of trademarks to underscore the key points that trademarks are a source of market power. These case developments contribute to the monopolistic tendencies of trademarks and describe how such tendencies are associated with the theory on market power and product differentiation. Empirically, the Article examines beer products from a single large corporation and the various trademarks/brands to determine whether such brands are a source of market power, effectively giving that manufacturer a monopoly on the beer market. A discussion of product hopping in pharmaceuticals is used to supplement the theories and evidence from the beer market. The Article also develops a theory of branded monopoly and suggests that, as a result of single ownership of trademarks and brands that are abundant from a single owner trademark’s market power, questions relating to antitrust foreclosure are often raised, despite the fact that market * Faculty of Law, University of Helsinki. This Article was written in 2013 while the author was a visiting scholar at Fordham Law School in New York City. The data gathered in the Article represents figures up to June 2013 and does not discuss the relationship between ABInBEV and the 2016 merger with SAB Miller. A version of this Article was presented at the 2013 Intellectual Property Scholars Roundtable at Drake University Law School, April 12 to 13, 2013. The author is grateful for feedback from the participants including, Peter Yu, Lucas Osborn, John Cross, William Hubbard, Paul Head, Greg Vetter, and Nicolas Suzor. John Cross subsequently read the four different papers including this Article and offered additional comments. While she was at Fordham, Sonia Katyal also offered comments and Mark Lemley later offered some valuable comments. Vol. 35, No. 2 (2017) ● ISSN: 2164-7984 (online) ● ISSN 0733-2491 (print) DOI 10.5195/jlc.2017.120 ● http://jlc.law.pitt.edu 163 164 JOURNAL OF LAW AND COMMERCE [Vol. 35:163 power is not anticompetitive per se. If it is recognized that trademarks are a source of market power, and hence, a core concern for antitrust law and policy, then the legal foundations of the current trademark system would need a radical redesign. If, on the other hand, it is recognized that trademarks are a source of market power, but do not conflict with antitrust law, and antitrust enforcers are to ignore conducts such as market foreclosure and other barriers to entry as a result of excessive trademarks and brands, then both antitrust and trademark law can continue to co-exist in the current system. Vol. 35, No. 2 (2017) ● ISSN: 2164-7984 (online) ● ISSN 0733-2491 (print) DOI 10.5195/jlc.2017.120 ● http://jlc.law.pitt.edu 2017] TRADEMARKS AS SOURCES OF MARKET POWER 165 TABLE OF CONTENTS I. Framing the Inquiry—Markets and Monopolization ........................ 167 II. Definition: What Is a Market? .......................................................... 176 A. Determining Geographic Market ............................................... 179 B. Determining Relevant (Product) Market ................................... 181 C. The Market for Ideas, Technology and Goods .......................... 183 D. Guidelines and Approaches to Market Definition in Intellectual Property .................................................................. 183 III. Product Differentiation as Sources of Market Power ....................... 187 A. Market Power and Modern Antecedents in Trademarks ........... 190 B. The Functions of Trademarks in a Competitive Economy ........ 195 C. Trademarks as Sources of Market Power .................................. 199 1. Entry Barriers ..................................................................... 201 2. Exclusionary Brands (Rebranding) .................................... 203 3. Trademarks, Price Fixing and Price Movements ............... 2 0 4 4. Trademark Submarkets ...................................................... 207 5. Illinois Tool Works—The Trademark Lesson .................... 209 IV. Anheuser-Busch InBev: Market Power and Branded Beers ............. 211 A. Beers and Competition .............................................................. 217 B. The Market for Beers ................................................................ 218 C. The Rise of Beer Monopolization ............................................. 219 D. ABI Brands Market Shares ....................................................... 220 1. ABI Brands—With Line Extensions (Multiple Brandings) ......................................................................... 222 Focus Brands in ABI’s Line Up ........................................ 224 2. The “Bud Effect” on Prices ................................................ 227 Further Observations on the Data Collection .................... 229 3. Does the “Bud-effect” Violate Antitrust Law? .................. 232 V. Between Consumer Welfare and Antitrust Law: Strategic Branding, Proliferation and Monopoly Leveraging .......................... 233 A. Should Market Power be Presumed with Trademarks? ............ 235 1. Tying Claims in Trademarks .............................................. 236 2. The Merger Problem and Trademarks ............................... 238 3. One Source, One Ownership and Many Trademarks ......... 241 B. A Theory of Branded Monopoly ............................................... 242 C. Trademark Market Power and Antitrust Foreclosure ................ 245 Vol. 35, No. 2 (2017) ● ISSN: 2164-7984 (online) ● ISSN 0733-2491 (print) DOI 10.5195/jlc.2017.120 ● http://jlc.law.pitt.edu 166 JOURNAL OF LAW AND COMMERCE [Vol. 35:163 VI. Market Power, Trademarks and Prescription Drugs ......................... 246 A. Pharmaceutical Product Redesigns Can Constitute Exclusionary Conduct ............................................................... 247 B. “Product Hopping”—Brands in Pharmaceuticals ..................... 249 C. Price Discrimination and Pharmaceutical Brands ..................... 251 VII. Conclusion ........................................................................................ 252 Vol. 35, No. 2 (2017) ● ISSN: 2164-7984 (online) ● ISSN 0733-2491 (print) DOI 10.5195/jlc.2017.120 ● http://jlc.law.pitt.edu 2017] TRADEMARKS AS SOURCES OF MARKET POWER 167 I. FRAMING THE INQUIRY—MARKETS AND MONOPOLIZATION To what extent is a trademark a source of market power? Does market power flow from monopoly power in trademarks? If trademarks are a source of market power—does it affect the antitrust regime? What is the nature of market power versus monopoly power? Should market power be presumed with trademarks? These are some of the questions that can affect the dynamics of how trademarks operate within our competitive economy. These very same questions also raise broader law and policy issues on the interaction of trademarks and antitrust. It is against this background that this Article seeks to investigate the claim that trademarks are a source of market power. It is a basic, yet controversial, claim given that the trademark system is unique within the realm of the intellectual property system. The question as to whether trademarks are sources of market power has been raised on different occasions;1 however, the goal of this Article is to provide more “meat” to those skeletal arguments, so to speak. It seeks to build upon those ideas and attempts to strengthen the argument that trademarks are a source of market power. This sentiment is also shared by Professor Glynn Lunney—who has immaculately argued that “trademark protection” has earned the label “trademark monopoly.”2 Both Professor Lunney’s claim and previous discussions on the subject fit into the overarching investigation into whether trademarks are an antitrust problem— to which my short answer is “yes.” As such, this Article will demonstrate that trademarks, when viewed as a line or brand extension technique and/or when designed to encourage product hopping, serve as a form of market power. To demonstrate these claims the Article takes into account previously ignored scholarly positions with similar proposition that trademarks are an antitrust problem, including Professor’s Scherer’s thesis that trademarks confer monopoly power which permits anti-competitive prices.3 The debate that 1 See P. Sean Morris, The Economics of Distinctiveness: The Road to Monopolization in Trade Mark Law, 33 LOY. L.A. INT’L & COMP. L. REV. 321 (2011); P. Sean Morris, Trademarks as Sources of Market